Walmart wage bump nice, but to earn more, stores must do more

Walmart wage bump nice, but to earn more, stores must do...

1of2Wal-Mart CEO Doug McMillon’s company is offer
ing more pay and training than it has in the past.Photo: Gareth Patterson / Associated Press

2of2MIAMI, FL - FEBRUARY 19: Walmart carts are seen outside the store on February 19, 2015 in Miami, Florida. The Walmart company announced Thursday that it will raise the wages of its store employees to $10 per hour by next February, bringing pay hikes to an estimated 500,000 workers. (Photo by Joe Raedle/Getty Images)Photo: Joe Raedle / Getty Images

Retail grunts might want to hold off on those early retirements plans for now.

Wal-Mart Stores Inc.’s decision to raise store employees’ minimum wages to $10 an hour by February 2016 is admirable, if long overdue. But the same harsh economics that underlie the big-box format remains.

There’s a reason that retail work is not particularly lucrative. Big-box chains like Walmart, Target and Best Buy offer low prices in two ways: (1) selling large volumes of merchandise from suppliers at discount prices, and (2) keeping operating costs — i.e., wages — as low as possible.

Amazon also follows the discount model, but the online retailer doesn’t operate physical stores. Walmart has more than 11,000 stores around the world, most of them 100,000 square feet or larger. To justify all that space, big boxes require store traffic — lots of people need to buy lots of stuff a lot of the time.

But foot traffic inside big-box retailers has been falling as more people shop online. Big-box chains are enjoying strong growth in online and mobile sales, but the jump in e-commerce revenue is not enough to offset declines in sales at stores. At the end of the day, stores form the core business of Target and Walmart, and that isn’t changing, no matter how fast Internet sales grow.

If big boxes plan to pay employees more, the retailers must redefine what it means to work in the store. In other words, stores must help their employees contribute to increasing sales and profit besides manning cash registers, answering questions and restocking shelves.

For example, Best Buy and Macy’s are embracing the “ship from store” idea, essentially using a store’s inventory to fill online orders. In the past, retailers dedicated specific distribution centers to e-commerce sales. But since big boxes already fill their large spaces with products, many of which sit on shelves collecting dust, it makes sense for companies to squeeze as much profit out of them by selling those products online.

“Ship from store” also allows for quicker deliveries. For example, 70 percent of America lives within 15 minutes of a Best Buy store. A couple of years ago, a winter storm prevented UPS from delivering packages on time, so Best Buy sent employees to personally deliver the merchandise to homes.

In addition to their regular store duties, employees are also contributing to the e-commerce side of the business.

This is just one example of how a retail worker will operate in the new “multichannel” business model. Employees won’t simply be traditional retail workers, but rather an integrated sales, marketing and delivery force.

And that certainly calls for a meaningful bump in wages and benefits.

Thomas Lee is a San Francisco Chronicle business columnist. He is also the author of “Rebuilding Empires” (St. Martin’s Press), a look at the future of big-box retail in the digital age. E-mail: tlee@sfchronicle.com Twitter: @ByTomLee

Thomas Lee is a business columnist for the San Francisco Chronicle. He is the author of “Rebuilding Empires,” (Palgrave Macmillan/St. Martin’s Press), a book about the future of big box retail in the digital age. Lee has previously written for the Star Tribune (Minneapolis), St. Louis Post-Dispatch, Seattle Times and China Daily USA. He also served as bureau chief for two Internet news startups: MedCityNews.com and Xconomy.com.